Investors might be worried this morning about whether the Automotive Holdings Group Ltd (ASX: AHG) and AP Eagers Ltd (ASX: APE) merger is going to go ahead.
A.P. Eagers is Australia’s oldest listed automotive retail group, it has been going for over a century. It operates automotive dealerships across Queensland, South Australia, New South Wales, Victoria, Northern Territory and Tasmania. It has over 4,500 employees.
What’s Going On With The Merger?
Before today it seemed as though AP Eagers would be successful as it aims to acquire all of the AHG shares it doesn’t already own. The offer is for 1 AP Eagers share for every 3.6 AHG shares owned.
However, the Australian Competition and Consumer Commission (ACCC) has raised some preliminary concerns about a merger between the two car dealership businesses. The ACCC is particularly concerned about competition in new car retailing in the Newcastle/Hunter Valley region of New South Wales.
A combined business would operate 46% of new car dealership sites in the Newcastle and Hunter Valley region, including those for the ten most popular brands, and would operate 54% of the dealership sites selling those brands. In metro Newcastle a combined company would operate 77% of dealerships selling the ten most popular brands.
Therefore, the ACCC has sent out a market feedback latter for market participants to state their concerns. It’s also going to look at what level of concentration this would have on the size of discounts customers could obtain.
However, the ACCC also said that its preliminary view is that the proposed merger won’t substantially lessen competition for the supply of new cars in Melbourne, Sydney and Brisbane or nationally, the wholesaling and retailing of used cars, the acquisition of car dealerships or the supply and acquisition of finance and insurance products.
What’s Going To Happen?
The ACCC must make a final decision by 26 July 2019 unless AP Eagers agrees to extend this period.
My best guess is that the ACCC will ask/require the sale of a few dealership in the Newcastle region which would be enough so that the combined business doesn’t dominate the region. The share prices of AP Eagers and AHG are both down around 3%.
Even so, I think car dealerships face short term issues due to the economy and longer term issues with the introduction of automated cars.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.